Question

JFI Foods produces processed foods. Its basic ingredient is a feedstock that is mixed with other ingredients to produce the final packaged product. JFI purchases the feedstock from two suppliers, Rex Materials and Red Oak Chemicals. The quality of the final product depends directly on the quality of the feedstock. If the feedstock is not correct, JFI has to dispose of the entire batch. All feedstock in this business is occasionally "bad," so JFI measures what it calls the "yield," which is measured as,

Yield = Good output ÷ Input

where the output and inputs are both measured in tons. As a benchmark, JFI expects to get 22 tons of good output for every 25 tons of feedstock purchased for a yield of 88 percent (= 22 tons of output ÷ 25 tons of feedstock).

Data on the two suppliers for the past year follow:

   

	Rex Materials				Red Oak Chemicals			Total
Total inputs purchased (tons)		1,490				2,390			3,880
Good output (tons)		1,267				1,688			2,955
Average price (per ton)	$	250			$	210		$	225

Required:

Assume that the average quality, measured by the yield, and prices from the two companies will continue as in the past. What is the effective price for feedstock from the two companies when quality is considered? (Round intermediate calculations and final answers to 2 decimal places.)

Answer 1

		Rex Materials	Red Oak Chemicals
a	Tons purchased	1,490.000	2,390.00
b	Good output	1,267.000	1,688.00
c	Yield (Good output/purchased)	85.03%	70.63%
d	Quoted price	250.000	210.00
	Effective price = (d/c)	294.00	297.33

Thus effective price for Rex Materials is $294.00 and effective price for Red Oak Chemicals is $297.33